Moving Corporate Boundaries: Consequences for Innovative Redesign

• Date: 01 October 2013
• Author: Lars‐Erik Gadde
• DOI: http://doi.org/10.1111/jscm.12027
• Published date: 01 October 2013

MOVING CORPORATE BOUNDARIES: CONSEQUENCES

FOR INNOVATIVE REDESIGN

LARS-ERIK GADDE

Chalmers University of Technology

The latest century has witnessed two major transformations of the business

landscape through which the boundaries of firms were modified substan-

tially. The first was the establishment of the large-scale integrated hierar-

chies, like the Ford Motor Company, in the beginning of the 20th century.

The second was the disintegration of these hierarchies at the end of the

same century. In both cases, the objective of the boundary movement was

to improve the opportunities for innovative redesign. Because the strategic

approaches to achieve this objective were quite different, the interplay

between innovative redesign and changes of the boundaries of firms

deserves further exploration. This article is based empirically on previous

research on these two types of transformations. The information from these

studies is used to formulate seven propositions concerning the interplay

between innovative redesign and corporate boundaries. Three main find-

ings spring from this study. First, the boundaries of firms are multifaceted.

In addition to the ownership boundary, it is demonstrated that influence

boundaries and awareness boundaries are central in innovative redesign.

Second, corporate boundaries are dynamic. The study shows that some-

times they function as buffers in relation to other firms, while in other situ-

ations, they serve as bridges. Third, for the individual firm’s boundary

setting, two issues appear to be critical: one concerns the trade-off between

specialization and integration, and the other relates to the interaction

between the internal capabilities of the firm and those that are accessible

from business partners.

Keywords: boundaries; innovation; redesign; vertical integration; specialization;

partnering

INTRODUCTION

Many businesses today are cutting back on opera-

tions to focus on the core business, reorganizing

their business practices by downsizing, restructur-

ing or reengineering, and contracting out various

functions and tasks (Ryans, 1996, p. 67).

This quote illustrates the significant movements of

corporate boundaries through outsourcing during

recent decades. Originating in the automotive industry,

this approach received widespread attention in the

1980s (Kumpe & Bolwijn, 1988) and continued to

exert a powerful influence on the organization of the

business landscape (Bustinza, Molina, & Gutierrez-Gut-

ierrez, 2010). Outsourcing narrowed the boundary

around a firm through specialization and focus on core

competence. This restructuring enabled outsourcing

firms to enhance the performance of remaining internal

functions and processes. Furthermore, overall cost effi-

ciency was provided through the operations of special-

ized, large-scale suppliers. By relying on these suppliers,

outsourcing companies could benefit from “specialized

capabilities that would be prohibitively expensive to

acquire or even impossible to duplicate internally”

(Quinn & Hilmer, 1994, p. 43). A particular benefit of

this reorganization was that a firm now could “tap into

the much richer innovation skills that outside suppliers

can offer” (Quinn, 1999, p. 16). By moving the owner-

ship boundary, a firm was able to improve the condi-

tions for innovation. This article deals with the

interplay between corporate boundaries and a specific

form of renewal, identified as “innovative redesign.”

This invited paper underwent a double-blind peer review.

Volume 49, Number 412